Real Domestic Effects of Banks' Cross-Border Lending
Summary
The Bank of England published Staff Working Paper No. 1,179 examining whether domestic banking sectors that engage in more cross-border lending benefit domestic productivity. Using cross-country and firm-level panel data across European economies and UK-specific data, the research finds that higher internationalisation of the domestic banking system is associated with improved domestic productivity. The effect is stronger when banks lend to firms in foreign advanced economies and is more pronounced during early phases of new banking relationships. In contrast, inflow of lending from foreign banks does not result in productivity improvements for the domestic real economy.
What changed
The Bank of England released a staff working paper analysing the relationship between domestic banking sector internationalisation and domestic real economy productivity. The paper uses both cross-country panel data from European economies and granular UK firm and bank panel data to examine whether banks lending more abroad benefits domestic productivity.
For compliance officers and banking professionals, this research provides empirical context for policy discussions around cross-border banking activity. While the paper does not create compliance obligations, it offers evidence that domestic banks' international lending activities may generate positive spillovers for the home economy, particularly when lending to advanced foreign economies. The finding that foreign bank inflows do not produce similar productivity benefits may inform regulatory considerations around foreign bank market access.
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Apr 12, 2026GovPing captured this document from the original source. If the source has since changed or been removed, this is the text as it existed at that time.
Real domestic effects of banks’ cross-border lending
Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on
10 April 2026
Staff Working Paper No. 1,179
Beniamino Pisicoli, Muhammad Usama Polani and Paolo Siciliani
In this paper we investigate empirically whether having a domestic banking sector that lends more abroad is beneficial for the productivity of the domestic real economy. We investigate this question by using both cross-country/cross-sector and within-country/cross-firm panel data, thus providing aggregate and micro evidence. The analysis, that comprises the estimation of several OLS, system GMM, local projection and IV models, points to the beneficial role of a higher internationalisation of the domestic banking system on the productivity of the domestic economy. Results emerge both when using cross-country/cross-sector data from a panel of European economies, and when adopting a more granular approach by using UK firm and bank panel data. This effect is stronger when the domestic banking system lends more to firms in foreign advanced economies, is not limited to exporting firms, and is more pronounced during the early phase of a new banking relationship. In contrast, the inflow of lending from foreign banks does not result in productivity improvements for the domestic real economy.
Real domestic effects of banks’ cross-border lending
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